Yahoo Finance FTSE 100 Live: Warnings from Walmart and Wickes trigger retail sell-off
Retail stocks have fallen sharply after warnings from Walmart and DIY retailer Wickes hit investor confidence.
US giant Walmart downgraded its profits guidance due to the impact of higher prices on non-food sales, while Wickes cut profits guidance amid signs of a slower DIY market.
In other updates, Marmite maker Unilever reported better-than-expeted sales growth of 8.1% for the first half of the year as higher prices offset a 1.6% fall in volumes.
FTSE 100 Live Tuesday
Walmart cuts profits guidance, shares slide
Wickes warning hits DIY sector shares
Heathrow and easyJet report losses
McDonald’s narrowly misses revenue forecasts
13:43 , Michael Hunter
McDonalds is the latest big-name US retailer to report a drop in quarterly earnings, narrowly missing forecasts for second quarter of its financial year after it shut its restaurants in Russia following Vladimir Putin’s invasion of Ukraine.
The global fast food giant, which operates around 200 outlets in and around London, reported earnings of $5.7 billion, down 3% and just under Wall Street analysts’ forecasts of $5.8 billion. Its results came a day after Walmart, the US’s biggest retail chain, stoked fears about the impact of inflation on consumer spending when it issued a profit warning for the rest of the year.
McDonald’s launched a rewards scheme in the UK last week, which allows diners using its app to save up points for free food offers. Offering 100 points for every pound spent, customers can choose to donate their balance to charity instead. A small portion of fries requires 1,500 points, or can be yours for 99 pence in cash.
Former BP executive to fire up Rolls-Royce
12:53 , Simon Hunt
Rolls-Royce has hired former BP executive Tufan Erginbilgic as its next chief executive to replace Warren East.
Erginbilgic will join the FTSE 100 engine maker from private equity firm Global Infrastructure Partners and will take up the top job at the start of 2023.
A UK and Turkish national, he will be paid a base salary of £1.25 million at Rolls, 30% of which will be paid as shares deferred for two years.
He finished a 20-year career at BP as head of its downstream business and said he was “honoured” to be joining Rolls-Royce as customers “embrace the energy transition”.
“I look forward to working with customers, partners and the Rolls-Royce team across the world on the next successful chapter for this iconic global engineering brand,” he added.
Erginbilgic also sits on the board of truck maker Iveco as well as DCC, the technology group and Türkiye Petrol Rafinerileri. He will review his involvement with these firms.
He joins as the group recovers after a difficult period, as airlines were grounded by the pandemic and Rolls-Royce engines remained switched off. East announced plans to step down last February, having run the Derby-based company for eight years.
Compass points to outsourcing as revenues double
11:26 , Simon Hunt
Rising inflation is prompting more companies to seek outside help to control costs, according to Compass Group, the world’s largest contract caterer.
Third-quarter revenue at the FTSE 100 company more than doubled from pre-Covid levels, helped by what it called “first time outsourcing”.
All areas of its business operated above pre-pandemic levels, with underlying revenues up 109% from the same period in 2019. At its last set of annual results, it reported annual revenue of £18.1 billion and operating profit of £811 million.
Compass, which runs staff restaurants and canteens for corporate clients around the world, said in its latest update it was “particularly pleased” with the recovery in its Business and Industry operation, which was trading above levels seen before the pandemic struck, as workers returned to offices after the end of Covid restrictions.
The group took a big hit from the impact of the pandemic, with group sales down 44% when lockdown measures were at their most severe.
Spending fears hit retail stocks, Wickes down 19%
10:24 , Graeme Evans
Warnings from Walmart and the DIY chain Wickes triggered a wave of selling across the retail sector today as fears mount about a consumer spending slowdown.
B&Q owner Kingfisher was the biggest casualty in the FTSE 100 index, with shares tumbling by as much as 7% after rival Wickes revealed signs of a softer DIY market.
The disappointing trading update from Wickes came hours after US giant Walmart sent a shudder through the US retail sector by downgrading its annual profits guidance.
It blamed the impact of higher prices for slower demand in general merchandise, causing its shares to fall almost 10% in extended hours trading on Wall Street.
Fellow retailers Macy’s and Target were caught in the sell-off, while the downgrade did little for the nerves of UK investors after supermarket chains Tesco and Sainsbury’s joined Next and B&M European Value Retail in falling by around 2%.
In the FTSE 250, Marks & Spencer lost 5% and the Sports Direct owner Frasers Group surrendered a chunk of last week’s gains with a drop of 3%.
Wickes shares slumped 19% or 32.1p at 136.9p after it reduced its profit forecast to between £72 million and £82 million, a cut of up to 17% on City forecasts.
As well as slower DIY demand, it reported a softening of orders in the do-it-for-me home improvement market. Howden Joinery and Travis Perkins were impacted as their shares fell 3% and 5% respectively.
The FTSE 100 index held on to positive territory despite the retail sell-off, rising 55.36 points to 7361.66 thanks to stronger mining and energy stocks.
The UK-focused FTSE 250 dropped 51.42 points to 19,751.57, even though Hobbycraft’s private equity backer Bridgepoint rallied 11% after interim results.
Fallers included the Warhammer miniatures firm Games Workshop, having reported a 4% rise in full-year profits to £156.5 million and an improved dividend of 90p a share.
Shares lost 170p to 7360p but analysts at Peel Hunt have a target of 9500p based on opportunities for growth in North America and Asia. The broker added: “Hobbies tend to be pretty resilient during a recession and Games Workshop has plenty of new product to engage its hobby base.”
City Comment: Time for a big tech clampdown
10:11 , Simon English
A WARM welcome to Sarah Cardell, who starts as interim CEO at the Competition and Markets Authority today.
What should be top of her inbox is a proper crackdown on our tech overlords.
As General Counsel, Cardell launched a probe into Amazon earlier this month, looking at if the way it treats other retailers on Amazon Marketplace.
We need more.
Chris Philp, who was Minister for Tech until the other day, recently gave a speech calling for “lighter touch regulation” to make Britain’s regulatory regime “a source of national competitive advantage”.
Ministers always think that less regulation equals more business, but it equally often favours the established companies with all the lawyers.
Far better would be to empower Cardell to clamp down on the big boys wherever she can. They plainly won’t stop otherwise.
Google is expanding into retail, education and enterprise. Apple is now a payment service provider and Microsoft is a behemoth in cloud computing and gaming.
Despite recent headwinds, Facebook still commands the attention of over three billion users. Microsoft has 1.4 billion active devices running Windows 10 or 11. This reach provides the tech giants with an insurmountable advantage over any start-up.
The power of these giants is difficult for any upstart to overcome. And when they start offering ‘free’ services (or adopt predatory pricing strategies) in a competitor’s space it’s game over for the newcomer.
The fight amongst streaming services is one thing. What happens when the battle turns to cybersecurity? Microsoft’s security business is growing fast. It has committed to spending a further $20 billion over the coming years. How is that competitive, and what happens if Microsoft falls victim to hackers from China, Iran, or North Korea?
Cardell should go for it.
More strife in the air trade
09:58 , Simon English
STRIFE in the air trade grew today when easyJet and Heathrow both reported fresh losses that might at least convince customers that they are not the only ones suffering from travel chaos.
Amidst a war of words between airlines and airports as to who is to blame, easyJet’s woes show little sign of ending.
With arch rival Ryanair yesterday moving back into the black with a quarterly profit of £145 million, easyJet today reported a £114 million loss for the last three months.
CEO Johan Lundgren said: “The unprecedented ramp up across the aviation industry, coupled with a tight labour market, has resulted in widespread operational challenges culminating in higher levels of cancellations than normal.”
Since Covid, easyJet’s losses have soared past £2 billion. It was unable to say today when it might return to profit. Further flight cancellations seem likely. It said it will “continue to fine tune our schedule if required”.
Lundgren says Brexit is partly to blame for hiring problems that have led to staff shortages on the ground.
Yesterday Ryanair’s punchy CEO Michael O’Leary rounded on Heathrow boss John Holland-Kaye. He said: “Heathrow is an airport that couldn’t run a p***-up in its own brewery.”
DIY retailers lower, commodity stocks boost FTSE 100
08:56 , Graeme Evans
A warning from Wickes that the DIY market has softened in recent weeks sent shares in B&Q owner Kingfisher down by 6% today. Howden Joinery also dipped 4% and Travis Perkins fell by 7%, while All-Share stock Wickes slid 17% after its trading update.
Other retailers including Tesco and Sainsbury’s were also under pressure, falling by around 2% after last night’s profits warning from US giant Walmart.
Stronger commodity-focused stocks and a rise of 3% for Unilever meant the FTSE 100 index stood 35.87 points higher at 7342.17. The FTSE 250 dropped 100.42 points to 19,702.57, with big retail fallers including Marks & Spencer after a decline of 5%.
Shares in easyJet were close to their opening mark at 375p following the airline’s first quarter trading update, while Hobbycraft’s private equity backer Bridgepoint rose 5% after interim results.
OneWeb agrees merger with Eutelsat in £2.8 billion deal
08:49 , Simon Hunt
British satellite firm OneWeb has agreed a merger with French firm Eutelsat in £2.8 billion deal as the pair look to take on rival Elon Musk to provide global internet connectivity from space.
Under the terms of the deal OneWeb would be wholly owned by Eutelsat, with OneWeb shareholders trading their stakes for Eutelsat shares.
OneWeb, which is part-owned by the UK government, would remain headquartered in the UK, while Paris-listed Eutelsat would seek an additional London listing.
The move means the companies would share a combined 464 satellites, giving them the muscle power to take on the likes of Elon Musk’s SpaceX Starlink or Amazon’s Project Kuiper satellite programme.
OneWeb was bailed out by the British government in 2020 to the tune of £400 million after it filed for bankruptcy.
Unilever “treading fine line” as sales rise
08:22 , Simon Hunt
Unilever shares are 2% higher after the consumer goods giant said underlying sales growth for 2022 will be higher than its previous guidance in the range of 4.5% to 6.5%.
The increase comes after it reported a figure of 8.1% in the first half, against expectations of 7% growth. This comprised 9.8% price growth and was offset by a decline of 1.6% in volumes.
The sales progress was offset by the impact of cost inflation on its operating margin, which declined by 180 basis points to 17% in the first half. Operating profits rose 4.1% to 5 billion euros (£4.24 billion).
Richard Hunter, head of markets at Interactive Investor, said: “Unilever is treading a fine line between growth and pricing out some of its customers, but for the moment the strategy is holding up.”
Rolls-Royce appoints new CEO
08:08 , Graeme Evans
Engines giant Rolls-Royce has appointed former BP executive Tufan Erginbilgic as its next chief executive.
He will take up the role on 1 January, succeeding Warren East who announced his intention to step down in February.
Erginbilgic is currently a partner at Global Infrastructure Partners, a private equity firm focused on large-scale investments in the infrastructure sector.
He previously led BP's downstream business, having spent 20 years with the oil giant prior to his departure in 2020.
Rolls-Royce chair Anita Frew said: “He is a proven leader of winning teams within complex multinational organisations, with an ability to drive a high-performance culture and deliver results for investors.”
Walmart warning hits US shares, FTSE 100 steady
07:52 , Graeme Evans
Shares in US retailers were sharply lower in extended trading on Wall Street last night after groceries giant Walmart downgraded its annual profit guidance.
The chain blamed the impact of rising prices on consumer spending in its general merchandise operation for the cut to quarterly and full-year estimates.
Walmart shares fell by just under 10% and dragged other retailers lower, including Macy’s and Target. US futures markets are pointing to a weak opening later after Monday’s session saw the Dow Jones Industrial Average and the S&P 500 close moderately higher.
In an otherwise robust earnings season so far, earnings figures due later from Microsoft, Google owner Alphabet and Coca-Cola will provide a further test to sentiment.
The other focus this week is the latest Federal Reserve rate meeting, where another 75 basis points rate hike is due to be announced tomorrow.
In Europe, fears over the economic impact of reduced flows of gas through the Nord Stream 1 pipeline continue to hang over markets. Germany’s IFO business survey for July slipped to a two-year low yesterday, fuelling fears that its economy is on the cusp of recession.
CMC Markets expects the FTSE 100 index to open five points higher at 7311, but with indices in Frankfurt and Paris slightly lower.
